Bonds sold off after the ISM data, pushing yields to the highest since July 2011.
Benchmark 10s are trading up 6.5 bps to 2.96% — just a short hop to the all-important 3% level. I suspect caution ahead of non-farm payrolls will protect 3% for now but a break could add some major volatility to markets. There was already talk of huge drawdowns at bond funds like PIMCO and a breakout will cause another vicious cycle of selling.
That’s good news for USD/JPY as the rate differential over Japanese 10s (at 0.78%) widens. It’s also bad news for stocks, where dividends look less attractive and gold, which doesn’t pay a dividend.
US 10 year yields